Rio Tinto to put Australian assets up for sale

April 3, 2013

Rio Tinto is seeking to sell a number of its thermal coal mines in Australia including 29 percent of its Coal & Allied unit. These sales could be worth as much as US$3 billion, The Wall Street Journal reported.

Rio Tinto wants reduce its interest in Coal & Allied, which owns active coal mines in eastern Australia's New South Wales state, to as low as 51 percent and has hired Deutsche Bank to handle the sale, sources told The Wall Street Journal.

Rio Tinto and Japan's Mitsubishi Corp. bought out minority investors in Coal & Allied in late 2011 in a deal that valued the country's sixth-largest coal miner by output at A$10.6 billion (US$11.1 billion). Rio owns 80 percent of Coal & Allied, with the remainder held by Mitsubishi.
Deutsche Bank is also selling Rio Tinto's interests in the Clermont and Blair Athol thermal coal mines in Queensland state, which could fetch more than US$1 billion.

Lower prices for coal and other commodities have fallen out of favor and mining companies, like Rio Tinto, are looking to offload less profitable assets. Rio Tinto has already put its iron-ore operations in Canada up for sale and is continuing to review its diamonds division and Pacific Aluminium unit.

BHP Billiton Ltd., the world's biggest mining company by market value, is also looking to sell assets and has identified about 10 non-core businesses it could exit as it too seeks to cut costs, including its Gregory Crinum metallurgical coal mine in Queensland.

Peabody Energy Corp. late last year said it was pushing ahead with the planned sale of its Wilkie Creek thermal coal mine in Queensland. Vale SA has hired Bank of America Merrill Lynch to sell minority stakes in the undeveloped Belvedere and Degulla coal deposits in Australia, The Wall Street Journal reported in March.

Thermal coal has become less attractive as a long-term investment for companies like Rio Tinto after prices tumbled to three-year lows in September.

Although Asian energy demand is rising, especially in China, thermal coal prices are being held down by producers redirecting cargoes of the fuel from the U.S. and Europe. Many U.S. consumers like power plants have switched from using coal to natural gas as a result of the boom in shale gas output, while European coal demand has stagnated as major economies struggle to grow.

At the same time, companies say Australia's raw material exports are becoming less competitive due to rising mining costs like labor and a high Australian dollar.

The Coal & Allied unit's assets include opencut mining complexes at Bengalla, Hunter Valley Operations and Mount Thorley Warkworth. It further owns untapped deposits such as Mount Pleasant, which Rio Tinto is reviewing to find ways of cutting development costs. Several Asian trading houses and utilities are minority investors in the mines, some of which also produce metallurgical coal used to make steel.

Clermont — discovered accidentally by companies exploring for gold in the late 1970s — is one of Rio Tinto's newest and largest coal operations. The mine is being offered as a package with the Blair Athol operation, which Rio Tinto closed in November after it decided not to extend its mining life.


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